Wednesday, 17 December 2008

Innovation Group should "Take the Money"

(By Richard Holway) This morning the Independent published a piece - Private equity bids set to value Innovation at £100m – saying that the Innovation Group (TiG) was in takeover talks with a number of PE firms (SilverLake, Carlyle and HG were mentioned) valuing the TiG at £100m or 15p-20p per share. Given last night’s close of 3.45p, that’s about the biggest premium we have ever recorded.

BUT, a few minutes ago, TiG issued a statement in response to this article saying “The Board has been advised that these approaches are not at a level acceptable to the majority of the Company's shareholders and therefore confirms it will not be pursuing them”

Firstly, let me declare an interest. Geoff Squire who is the Chairman and significant shareholder in TiG, is a long-standing personal friend. For that reason I’ve held off commenting on TiG in the past. When my colleague Anthony Miller commented on TiG last week (see UKHotViews 3rd Dec 08 – TIG ‘gains traction’ but loses profits) we got an ‘email of rebuke’ for his efforts.

So maybe I should leave the comments to others? Ian Spence of Megabuyte describes TiG’s statement as “one of the most bizarre we have ever seen coming from a PLC ...This turn of events is frankly a disgrace. Why wasn't this indicative offer taken though to its conclusion?....We can't help thinking that smaller shareholders who were not consulted about rejecting such a generous approach are likely to feel aggrieved, to say the least, at not having the chance to exit the business at a massive premium to the current price”.

A rather more supportive view comes from George O’Connor at Panmure Gordon “Innovation is correct in assuming that investors would be loath to accept an offer of between 15p and 20p. But a bit like the take over of financial software vendor Coda before it, the ‘bird in the hand’ argument is persuasive. Indeed for many investors the chief concern has been a cheeky bid below c10p. Given the execution risks with this years forecasts it will be the back end of the year before investors have an opportunity to assess Innovations progress, and confidence in their ability has been tested after last years performance. So in our view investors are likely to accept a somewhat higher offer. Insiders hold 4.85% - institutions hold 81.13%. We urge Innovation not to close the door on this potential suitor.”

Bluntly, I think the answer lies in ‘pride’. Geoff Squire bought 10,000,000 shares at 21.5p only 6 months ago (see UKHotViews 26th May 08 – Geoff Squire doubles stake in TiG).

Geoff doesn’t like losing.

Footnote - TiG shares are currently (10.00am) up 100% at 7p - still very considerably below the suggested offer price.

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